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                                                                    EXHIBIT 10.4

                             GALILEO TECHNOLOGY LTD.

                        1997 EMPLOYEES' STOCK OPTION PLAN

A. NAME, PURPOSE AND SCOPE.

         This plan, as amended from time to time, shall be known as the "Galileo
Technology Ltd. 1997 Employee Stock Option Plan," or "Plan."

         2. PURPOSE.

              The purpose and intent of the Plan is to provide incentives to
employees of Galileo Technology Ltd. (the "Company") by providing them with
opportunities to purchase Ordinary Shares of the Company (the "Shares"),
pursuant to this Plan which was approved by the Board of Directors of the
Company - which is designed to benefit from, and is made pursuant to, the
provisions of Section 102 of the Israeli Income Tax Ordinance [New Version],
1961, and the rules and regulations promulgated thereunder.

         3. SCOPE.

                  Subject to the provisions of Section 11 of the Plan, the
number of authorized Shares (whether already issued or yet unissued) for
purposes of the Plan shall be 2,910,000 (two million, nine hundred ten
thousand); provided, however, that the number of shares that may be subject to
option and sold under this Plan and the Galileo Technology Ltd. 1997 GTI Stock
Option Plan (the "GTI Plan") shall be increased each year by an aggregate of
four percent of the outstanding Shares of the Company. Such increase shall be
effected each year on January 1, and the allocation of the Shares to the Plan
and the GTI Plan will be as determined by the Board of Directors. All Shares
under the Plan, in respect of which the right hereunder of a Grantee to purchase
the same shall, for any reason, terminate, expire or otherwise cease to exist,
shall again be available for grant through Options under the Plan.

B. GENERAL TERMS AND CONDITIONS OF THE PLAN.

         4. ADMINISTRATION.

              4.1 The Plan will be administered by the Board of Directors of the
Company (the "Board") or by a committee appointed by the Board (the
"Committee"), which, if appointed, will consist of such number of Directors of
the Company as may be fixed, from time to time, by the Board. If a Committee is
not appointed, the term Committee, whenever used herein, shall mean the Board.
The Board shall appoint the members of the Committee, may from time to time
remove members from, or add members to, the Committee and shall fill vacancies
in the Committee however caused.

              4.2 The Committee shall select one of its members as its Chairman
and shall hold its meetings at such times and places as it shall determine.
Actions approved by a majority of the voting members of the Committee at a
meeting at which a majority of its members is present, or acts approved in
writing by all members of the Committee, shall be the valid acts of


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the Committee. The Committee shall make such rules and regulations for the
conduct of its business as it shall deem advisable. The Committee may appoint a
Secretary, who shall keep records of its meetings.

              4.3 Subject to the express general terms and conditions of this
Plan, the Committee shall have the full authority in its discretion, from time
to time and at any time, to determine the following issues: (i) the persons
(herein "Grantees") to whom the options to purchase Shares ("Option/s") shall be
granted, (ii) the number of Shares to be covered by each Option, (iii) the time
or times at which the same shall be granted, (iv) the price, schedule and
conditions on which such Options may be exercised and on which such Shares shall
be paid for, and (v) any other matter which is necessary or desirable for, or
incidental to, the administration of the Plan. In determining the number of
Shares covered by the Option to be granted to each Grantee, the Committee may
consider, among other things, the Grantee's position and salary, and the
duration of the Grantee's employment by the Company.

              4.4 The Committee may, from time to time, adopt such rules and
regulations for carrying out the Plan as it may deem necessary. No member of the
Board or of the Committee shall be liable for any act or determination made in
good faith with respect to the Plan or any Option granted thereunder.

              4.5 The interpretation and construction by the Committee of any
provision of the Plan or of any Option thereunder shall be final and conclusive
unless otherwise determined by the Board.

         5. ELIGIBLE GRANTEES.

              The Committee, at its discretion, may grant Options to any
employee or consultant (the term "employees" in this Plan shall be interpreted
to include consultants) of the Company, including Directors who are employees of
the Company. Anything in this Plan to the contrary notwithstanding, all grants
of Options to Directors and Office Holders ("Nosei Misra" as such term is
defined in the Companies Ordinance (New Version) 1983, as amended from time to
time - the "Companies Ordinance"), shall be authorized and implemented only in
accordance with the provisions of the Companies Ordinance. The grant of an
Option to a Grantee hereunder shall neither entitle such Grantee to participate,
nor disqualify him from participating, in any other grant of options pursuant to
this Plan or any other stock option plan of the Company.

         6. GRANT OF OPTIONS AND ISSUANCE OF SHARES IN TRUST.

              6.1 Grant of Options and Issuance of Shares in Trust.

                  (a) Subject to Section 7.1 hereof, the effective date of the
         grant of an Option (the "Date of Grant") shall be the date specified by
         the Committee in its determination relating to the award of such
         Option. The Committee shall promptly give the Grantee written notice of
         the grant of an Option (the "Notice of Grant").

                  (b) Any grant of Options under this Plan shall be made in
         consideration for the Grantee's waiver with regard to his/her salary at
         a rate to be determined by the Committee.



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                  (c) Anything herein to the contrary notwithstanding, all
         Options granted under the Plan and/or Shares underlying such Options
         shall be held by a trustee designated by the Board and approved by the
         Israeli Commissioner of Income Tax (the "Trustee"), and the Trustee
         shall hold each such Option and the underlying Shares and the Shares
         issued upon exercise thereof in trust (the "Trust") for the benefit of
         the Grantee in respect of whom such Option was granted (the "Beneficial
         Grantee"). All certificates representing Shares issued to the Trustee
         under the Plan shall be deposited with the Trustee, and shall be held
         by the Trustee until such time that such Shares are released from the
         Trust as herein provided.

                  (d) Anything herein to the contrary notwithstanding, Options
         or Shares shall not be released from the Trust until the later of (i)
         two (2) years after the Date of Grant, and (ii) the vesting of such
         Shares pursuant to Section 7.3 hereof or the Notice of Grant (such
         later date being hereinafter referred to as the "Release Date").

                  (e) Subject to the terms hereof, at any time after the Release
         Date with respect to any Options or Shares, the following shall apply:

                           (i) Options granted, and/or Shares issued to the
              Trustees, shall continue to be held by the Trustee on behalf of
              the Beneficial Grantee. From and after the Release date, upon the
              written request of any Beneficial Grantee, the Trustee shall
              release from the Trust the Options granted and/or the Shares
              issued on behalf of such Beneficial Grantee, by executing and
              delivering to the Company such instrument(s) as the Company may
              require, giving due notice of such release to such Beneficial
              Grantee; provided, however, that the Trustee shall not so release
              any such Options and/or Shares to such Beneficial Grantee unless
              prior to or concurrently with such release, the Grantee provides
              the Trustee with evidence, satisfactory in form and substance to
              the Trustee, that all taxes, if any, required to be paid upon such
              release have in fact been paid.

                           (ii) Alternatively, from and after the Release Date,
              upon the written instructions of the Beneficial Grantee to sell
              any Shares issued upon exercise of Options, the Trustee shall use
              its best efforts to effect such sale and shall transfer such
              Shares to the purchaser thereof concurrently with the receipt, or
              after having made suitable arrangements to secure the payment of
              the proceeds, of the purchase price in such transaction. The
              Trustee shall withhold from such proceeds any and all taxes
              required to be paid in respect of such sale, shall remit the
              amount so withheld to the appropriate tax authorities and shall
              pay the balance thereof directly to the Beneficial Grantee,
              reporting to such Beneficial Grantee and to the Company the amount
              so withheld and paid to said tax authorities.

              6.2 Dividends. All Shares issued upon the exercise of Options
granted under the Plan shall entitle the Beneficial Grantee thereof to receive
dividends with respect thereto. For so long as Shares issued to the Trustee on
behalf of a Beneficial Grantee are held in the Trust, the dividends paid or
distributed with respect thereto shall be remitted to the Trustee for the
benefit of such Beneficial Grantee.


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              6.3 As long as the Shares purchased upon exercise of the Options
are held by the Trustee, the Beneficial Grantee shall not be entitled to receive
notices regarding general meetings of the Company nor to participate or to vote
in such meetings.

              6.4 As long as the Shares purchased upon exercise of the Options
are held by the Trustee, the Trustee, or a proxy appointed by him, shall possess
and be entitled to exercise the exclusive right to vote all the Shares standing
in the name or held by the Trustee, at all regular and special meetings of the
shareholders of the Company and may vote for, do or assent or consent to, and
shall have all the powers, rights and privileges of a shareholder of the
Company. The Trustee shall vote all Ordinary Shares held by the Trustee in
proportion to the vote of all outstanding shares of the Company upon any vote of
the shareholders of the Company.

         7. GRANT OF OPTIONS.

              7.1 The Committee in its discretion may award to Grantees Options
to purchase Shares in the Company available under the Plan. Options may be
granted at any time after the passage of thirty (30)days following the delivery
by the Company to the appropriate income tax authorities of a notice pertaining
to the appointment of the Trustee and the adoption of the Plan.

              7.2 The Notice of Grant shall state, inter alia, the number of
Shares covered thereby, dates and rates according to which the Options may be
exercised (become vested), the exercise price, and such other terms and
conditions as the Committee at its discretion may prescribe, provided that they
are consistent with this Plan.

              7.3 Without derogating from the rights and powers of the Committee
under Section 7.2 hereof, unless otherwise specified in the Notice of Grant,
each Option under the Plan shall be for a term of eight (8) years (the "Term").
The schedule pursuant to which such Options shall vest, and the Beneficial
Grantee thereof shall be entitled to pay for and acquire the Shares, shall be
determined by the Committee. Unless otherwise determined by the Committee, 24/48
(one half) of the number of Shares covered by each Option shall vest on the
second anniversary of the Date of Grant, and 1/48 shall vest on the last day of
each calendar month thereafter.

              7.4 Each Option granted hereunder shall be evidenced by a Grantee
Agreement, to be entered into by and between the Company and such Grantee, in
the form attached hereto as Exhibit A or in such other form and substance as may
be approved by the Committee from time to time, which shall incorporate the
provisions of this Plan. In the event of any conflict between the terms and
conditions of a Grantee Agreement and the terms hereof, the terms hereof shall
prevail unless otherwise determined by the Committee.

         8. EXERCISE PRICE.

              The exercise price per Share covered by each Option shall be
determined by the Committee in its sole and absolute discretion; provided,
however, that such exercise price shall not be less than 85% of the fair market
value of the Shares on the Date of Grant, as determined by the Committee, taking
into account the relative rights of the Shares as compared to the rights
attached to the other classes of shares of the Company. The Committee may, at
any time prior to



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exercise of certain Options, reduce the exercise price of such Options to the
then current fair market value if the previous exercise price exceeds the then
fair market value of the Ordinary Shares covered by such Options.

         9.       EXERCISE OF OPTIONS.

              9.1 Options shall be exercisable pursuant to the terms under which
they were awarded and subject to the terms and conditions of the Plan.

              9.2 The exercise of an Option shall be made by a written notice of
exercise (the "Notice of Exercise") delivered by the Beneficial Grantee (or,
with respect to Options held in the Trust, by the Trustee upon receipt of
written instructions from the Beneficial Grantee) to the Company at its
principal executive office, specifying the number of Shares to be purchased and
accompanied by the payment therefor, and containing such other terms and
conditions as the Committee shall prescribe from time to time.

              9.3 Anything herein to the contrary notwithstanding, but without
derogating from the provisions of Section 10 hereof, if any Option has not been
exercised and the Shares covered thereby not paid for within eight (8) years
after the Date of Grant (or any shorter period set forth in this Plan or in the
Notice of Grant), such Option and the right to acquire such Shares shall
terminate, all interests and rights of the Grantee in and to the same shall ipso
facto expire, and, in the event that in connection therewith any Options are
still held in the Trust as aforesaid, the Trust with respect thereto shall ipso
facto expire and the Trustee shall thereafter hold such Options in an
unallocated pool until instructed by the Company that some or all of such
Options are again to be held in trust for one or more Grantees.

              9.4 Each payment for Shares shall be in respect of a whole number
of Shares, and shall be effected in cash or by a cashier's check payable to the
order of the Company, or such other method of payment acceptable to the Company.

              9.5 Anything in this Plan to the contrary notwithstanding, in the
event the employment of a Grantee is terminated by the Company for "cause" (as
defined hereafter), such Grantee shall not be entitled to exercise any Options
subsequent to the time of delivery of the notice of discharge, and all such
Options and the right to acquire Shares thereby shall terminate, all interests
and rights of the Grantee in and to the same shall ipso facto expire, and, in
the event that in connection therewith any Options are still held in the Trust
as aforesaid, the Trust with respect thereto shall ipso facto expire and the
Trustee shall thereafter hold such Options in an unallocated pool until
instructed by the Committee that some or all of such Options are again to be
held in trust for one or more Grantees. For purposes herein, "cause" shall
include: (i) the commitment of a serious breach of trust, including but not
limited to embezzlement, theft or self-dealing; (ii) the prohibited disclosure
to unauthorized persons or entities of confidential or proprietary information
of or relating to the Company; (iii) the engaging by the Grantee in any
prohibited business competitive to the business of the Company and/or its
affiliates; (iv) the failure of the Grantee to perform any of his or her
material duties and obligations as an employee of the Company as a result of
gross negligence or willful misconduct.



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         10. TERMINATION OF EMPLOYMENT.

              10.1 In the event that the employer-employee relations between the
Company and a certain Grantee terminate for any reason (hereinafter,
"Termination"), all Options or part of Options granted to such Grantee which
have not become vested until the Termination shall terminate and expire (except
in the case of termination by death or disability of the Grantee as provided in
Sections 10.3 and 10.4); and such Options and the right to acquire Shares
thereby shall terminate, all interests and right of the Grantee in and to the
same shall ipso facto expire, and, in the event that in connection therewith any
Options are still held in the Trust as aforesaid, the Trust with respect thereto
shall ipso facto expire and the Trustee shall thereafter hold such Options in an
unallocated pool until instructed by the Company that some or all of such
Options are again to be held in trust for one or more Grantees.

              10.2 As to Options which have become vested prior to the
Termination, and subject to provisions of Section 9.5 above, the following shall
apply: The Grantee (or his legal representative, estate, heirs or other person
to whom the Grantee's rights are transferred by will or by laws of descent in
case the Termination is due to such Grantee's death or incompetence), shall have
a period of 90 days following Termination in which to exercise such vested
Options or such longer period as may be applicable upon death or disability of
the Grantee as provided in Sections 10.3 and 10.4 below. If any such Option has
not been exercised and the Shares covered thereby not paid for within such
ninety (90) day period or such longer period as may be applicable upon death or
disability of the Grantee as provided in Sections 10.3 and 10.4 below, such
Option and the right to acquire such Shares shall terminate, all interests and
rights of the Grantee in and to the same shall ipso facto expire, and the Trust
with respect thereto shall ipso facto expire and the Trustee shall thereafter
hold such Options in an unallocated pool until instructed by the Company that
some or all of such Options are again to be held in trust for one or more
Grantees.

              10.3 In the event that the employer-employee relations between the
Company and a certain Grantee terminate as a result of his or her "permanent
disability" as defined below, the Grantee shall be entitled, but only within
twelve (12) months from the date of such termination (and in no event later than
the expiration date of the term of such Options as set forth in the Grantee
Agreement), to exercise all Options such employee would have been entitled to
exercise had such employee remained employed for two (2) years from the date of
such termination. If the Grantee does not exercise such Option to the extent so
entitled within the time specified herein, such Option and the right to acquire
such Shares shall terminate, all interests and rights of the Grantee in and to
the same shall ipso facto expire, and the Trust with respect thereto shall ipso
facto expire and the Trustee shall thereafter hold such Options in an
unallocated pool until instructed by the Company that some or all of such
Options are again to be held in trust for one or more Grantees. "Permanent
disability" shall be defined as an individual who is unable to engage in any
substantial gainful activity by reason of any determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less then twelve (12) months.
An individual shall not be considered permanently disabled unless he or she
furnishes proof of the existence thereof in such form and manner as the Company
may require.



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              10.4 In the event of the death of a Grantee, the Grantee's estate
or any person who acquired the right to exercise the Options by bequest or
inheritance shall be entitled, but only within twelve (12) months from the date
of such termination (and in no event later than the expiration date of the term
of such Options as set forth in the Grantee Agreement), to exercise all Options
such employee would have been entitled to exercise through vesting had such
employee remained employed for two (2) years from the date of such termination.
If, after the Grantee's death, the Grantee's estate or a person who acquires the
right to exercise the Option by bequest or inheritance does not exercise the
Option within the time specified herein, such Option and the right to acquire
such Shares shall terminate, and all interests and rights of the Grantee in and
to the same shall ipso facto expire, and the Trust with respect thereto shall
ipso facto expire and the Trustee shall thereafter hold such Options in an
unallocated pool until instructed by the Company that some or all of such
Options are again to be held in trust for one or more Grantees.

         11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.

              11.1 Subject to any required action by the shareholders of the
Company, the number of Shares covered by each outstanding Option, and the number
of Shares which have been authorized for issuance under the Plan but as to which
no Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Shares covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares resulting
from a stock split, reverse stock split, stock dividend, combination, division
or reclassification of the Shares or the payment of a stock dividend (bonus
share) with respect to the Shares or any other increase or decrease in the
number of issued Shares effected without receipt of any consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares or stock of any
class, or securities convertible into shares or stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares section to an Option.

              11.2  (a) In the event of a consolidation or merger of the Company
with or into another corporation, each Option shall be assumed or shall be
substituted by an equivalent option of such successor corporation or a parent of
subsidiary of such successor corporation. For this purpose, the determination by
the Committee of equivalent options shall be final, binding and conclusive. (b)
In the event or a proposed dissolution, liquidation or re- organization of the
Company other than a specified in (a) above, the Committee shall notify each
Grantee at least thirty (30) days prior to such proposed action. To the extent
it has not been previously exercised, each Option will expire and termination
immediately prior to the consummation of such proposed action.

         12. NON-TRANSFERABILITY.

              12.1 No Option shall be assignable or transferable by the Grantee
to whom granted, except by will or the laws of descent and distribution. An
Option may be exercised only by the Grantee or his/her guardian or legal
representative. The terms of such Option shall be



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binding upon the legal representatives, guardians, beneficiaries, executors,
administrators, heirs and successors of such Grantee.

              12.2 No shares purchasable hereunder which were not fully paid
for, shall be assignable or transferable to or by the Grantee. In addition,
until the closing of an IPO of the Company's securities, all transfers of shares
of the Company by any of the Grantees or the Trustee on their behalf shall only
be made in accordance with the Articles of Association of the Company.

              12.3 The Company shall not register any transfer of Shares not
made in accordance with the Company's Articles of Association and any applicable
law.

         13. TERM AND AMENDMENT OF THE PLAN.

              13.1 The Plan was authorized by the Board on April 30, 1997, and
shall expire in May 2005 (except as to Options outstanding on that date), but
such expiration shall not affect the instructions contained herein or in any
applicable law with respect to the Options and Shares held in the Trust at such
time of expiration.

              13.2 Subject to applicable laws, the Board may, at any time and
from time to time, terminate or amend the Plan in any respect. Except as allowed
under the Plan or by law, the Company may not alter or impair the rights of a
Grantee, without his consent, under any Option previously granted to him.

         14. TAX CONSEQUENCES.

              All tax consequences arising from the grant or exercise of any
Option, from the payment for, or the subsequent disposition of, Shares covered
thereby or from any other event or act (of the Company or the Grantee)
hereunder, shall be borne solely by the Grantee. The Grantee shall indemnify the
Company and the Trustee and hold them harmless against and from any and all
liability for any such tax or interest or penalty thereon, including (without
limitation) liabilities relating to the necessity to withhold, or to have
withheld, any such tax from payment made to the Grantee.

         15. MISCELLANEOUS.

              15.1 Continuance of Employment. Neither the Plan nor the grant of
an Option thereunder shall impose any obligation on the Company to continue the
employment of any Grantee, and nothing in the Plan or in any Option granted
pursuant thereto shall confer upon any Grantee any right to continue in the
employ of the Company, or restrict the right of the Company to terminate such
employment at any time.

              15.2 Governing Law. The Plan and all instruments issued thereunder
or in connection therewith, shall be governed by, and interpreted in accordance
with, the laws of the State of Israel; and the courts of Israel (Haifa District)
shall have exclusive jurisdiction over all claims related thereto.



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              15.3 Application of Funds. The proceeds received by the Company
from the sale of Shares pursuant to Options granted under the Plan will be used
for general corporate purposes of the Company.

              15.4 Multiple Agreements. The terms of each Option may differ from
other Options granted under the Plan at the same time, or at any other time. The
Committee may also grant more than one Option to a given Grantee during the term
of the Plan, either in addition to, or in substitution for, one or more Options
previously granted to that Grantee. The grant of multiple Options may be
evidenced by a single Notice of Grant or multiple Notices of Grant, as
determined by the Committee.

              15.5 Non-Exclusivity of the Plan. The adoption of the Plan by the
Board shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.

              15.6 Hold Harmless. The Grantee and the Company shall hold the
Trustee harmless against and from any act or omission in relation to his duties
as Trustee as long as he acts, in his professional judgment, according to the
law and the agreements he has signed in relation to the Trust. The Grantee and
the Company shall also indemnify the Trustee for any third party claim made
against him based on such a cause.


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